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Oando Q2 Results Fails To Impress Me, What About You??
On the 24th of July, Oando hosts its Investors Conference Call in Edingburg Scotland with the hope of giving Investors an insight into the financial performance of the company for the first half of the year and off course a peek into what to expect in the future or more importantly at the end of the year. Till then, I will review their most recent financials in my usual short and precise manner with a more emphasis on the present and a peek into the past.
Revenue
The Company posted N350b in revenue this for the quarter ending June 2012, a 30.9% increase from the same period last year. This also followed the trend set in the first quarter when Turnover increased by 38.03% over the previous period in 2011. Its also more than double the half year result of N172.bb obtained in 2010. But does the increase in revenue translate to higher profits?
Gross Profits
Gross Profits for the first half of 2012 dropped 6.67% to N31b. This was due to higher cost of sale for the period increasing by 36.2% over the same period last year. At N31b their Gross Profit Margin was a mere 8.8% signifying a highly competitive business environment. At a margin of just under 9% the company is engaged in a business segment that required huge cost outlay to generate profits. Compare this to Dangote Cement which boasts of Gross Profit Margins of 50%.
Operating Income
Despite the huge overhang of its direct cost, the company was still able to churn out marginal operational profit for the period. At N16.2b its operational profit margin was 21% lower than the same period last year. Their thin operational profit margin of 4.6% also came lower than the 7.7% posted in the same period last year. SG& A also chucked up 63% of Gross Profit. At N19b, SG & A was a little lower than N20.4b obtained in the prior year.
Profit Before Tax and After Tax
Thankfully, the company was able to keep finance cost low at N5.8b. Even so it was 36% of operating profits just slightly lower than the 37% Interest to Operating Profit percentage posted in the same period in 2011. Profit after Tax of N6.6 is in line with the N6.8b obtained in the same period last year and a paltry 1.9% of Revenue.
Liquidity and Leverage
The company’s cash dropped significantly by 34% to N13b during the period when compared to the same period in 2011. This probably indicates a lot more acquisitions as the company seeks to expand its operations in the upstream sector and also repaying loans which stood at over N90b at the end of March this year. At the end of six months, Oando owes N88.9b in debts 92% of its Net Assets. The high leverage position will continue to weigh down on cash flows and profitability in the months and years to come. A look at their 2011 Annual Report also shows the company had N119b in current liabilities, more than the N106b in core debtors. Interest on their long-term loans also range between 7% to 15% with tenor between 3 to 7yrs max. Total Liabilities therefore stood at about N225b as at December 2011.
Bottom Line
Oando is a proudly Nigerian indigenous company and plays in a territory largely dominated by multinationals with track record spanning several years. The Company unlike its foreign counterparts have to grapple with high interest rates obtainable locally and huge cost of doing business reflected in their cost of equity. Their ability to remain profitable over the last 5 years is indeed commendable amidst a highly competitive even though lucrative market. But at a profit after tax of N6.6b their return on equity is about 7% showing no growth over the same period last year and the year before. The company may attribute most of its travails to the highly unstable downstream sector and yet to materialize to full potentials its several investments in the upstream and mid stream sector. However, this does not excuse this result from being sub par.
25/7/2011-12/7/2012
Investors seeking for companies with better returns on equity and consistent earnings growth may easily look away. For bounty hunters, who see any form of profit as a sign of optimism this may be an attractive buy position in the short – term. Its P.E ratio of 10.625 also represents a good bargain for potential buyers. But will it grow? As the graph above indicates, the share price has slopped downwards over the past year from N41.4 at the start of August 2011 to N14.47 as at 12th of July. You be the judge!!
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Dangote Sugar, sweet in more ways than one
Significant growth in gross revenue was driven largely by sale to Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited.
By refining capacity, Dangote Sugar Refinery Plc (DSR Plc) is acknowledged as the largest Sugar Refinery in sub-Saharan Africa and one of the largest in the world. With up to 60 percent market share, it is also clearly, the most dominant player in the Nigerian sugar market.
DSR Plc recently released its audited Financial Statements for the year ended December 31, 2020 and overall and year-on-year group performance results were very good.
Despite the impact of the Covid-19 induced lockdown which curtailed distribution across the country and resulted in decreased revenues from income generated from freights, gross revenues increased by over 33 percent year-on-year to ₦ 214.3 billion. The significant growth in gross revenue was driven largely by a rise in revenue from the sale of its 50kg sugar, with the two main customers being the Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited who operate principally from Lagos.
READ: Dangote Sugar completes acquisition with Savannah Sugar Company Limited
Year-on-year, gross profit increased by over 40 per cent to ₦ 53.75 billion, Profit before tax increased by almost 53 per cent to ₦ 45.62 billion, and Profit after tax increased by 33 per cent to ₦ 29.78 billion.
Notwithstanding the good result, the group operating results showed some issues and headwinds. First, during the year, DSR Plc wound up Dangote Niger Sugar Limited (one of four companies that had been set up to acquire large expanse of land and locally grow sugarcane as part of its concerted backward integration project). The winding-up was sequel to continued community dispute over land acquired in Niger State for this purpose. This winding-up event cost DSR Plc approximately ₦ 100 million.
Second, there continues to be a heavy reliance on Lagos for its gross revenues as revenues generated from Lagos State increased significantly from circa 33 per cent at the end of 2019 to over 50 per cent by the end of 2020. The share of the Lagos segment in gross revenue thus continued to grow and currently represents a significant market concentration risk for DSR Plc.
READ: Nigeria’s biggest oligopolies: Who are the real beneficiaries?
Third, provision for impairment on financial assets or in simple terms, receivables that are unlikely to be collectable, also trended upwards from ₦ 1.3 billion in 2019 to ₦ 1.45 billion by end of 2020 with net financing expenses also rising significantly from ₦ 516.2 billion in 2019 to ₦ 1.92 billion by the end of 2020. This rise in expenses was largely driven by a significant rise in exchange losses incurred in the ordinary course of business, rising from about ₦ 7 million in 2019 to over ₦ 1.57 billion at the end of 2020.
Finally, administrative expenses represented mainly by employee salaries grew year-on-year by over ₦ 1.2 billion.
With the recent reopening of land borders, we expect that revenues and margins will become squeezed as sales and production volumes become constrained by the influx of largely smuggled, lower quality, and much cheaper sugar and its substitutes. DSR Plc’s sugar refinery is also strategically located very close to the Apapa port and its logistics operations, distribution of raw materials and delivery of finished goods will continue to be impacted by the infamous Apapa Traffic Gridlock and road diversions/closures around the axis. Although the effort of Lagos state and the recent introduction of the electronic call up of truck by the NPA has eased the issue, still, it needs to be watched closely.
READ: Dangote Sugar yearly revenue surge by 33%, announces a dividend of N1.50
Earnings per share at the end of 2020 was ₦ 2.45 (2019: ₦ 1.87; 2018: ₦ 1.85)
Subject to approval at its forthcoming Annual General Meeting, DSR Plc board of directors have proposed a dividend of N1.50k per ordinary share (2019: ₦ 1.10k, 2018: ₦ 1.10k).
This performance is sweet in more ways than one.
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CBN “Naira 4 Dollar Scheme” Explained
What the CBN’s Naira 4 Dollar scheme means for your money.
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